Bank of Israel keeps interest rates at 4.5 percent citing heightened geopolitical uncertainty

(MENAFN) On Wednesday, the bank of Israel decided to maintain its policy rate at 4.5 percent, citing heightened geopolitical uncertainty and its economic impacts since the outbreak of the war. The bank noted that this increased uncertainty, particularly over recent months, has contributed to significant financial market fluctuations, including higher yield spreads between Israeli government bonds and US bonds, and near-record levels of credit default swap (CDS) spreads.

The central bank's statement highlighted that these geopolitical and fiscal uncertainties are affecting market conditions and contributing to elevated risk premiums. The bank pointed out that these financial indicators reflect broader concerns about economic stability and investor confidence amid ongoing conflicts and instability.

Additionally, the Bank of Israel observed a recent upward trend in inflation, which has risen above the target range set by the central bank. This increase in inflation is largely attributed to rising prices in the non-tradable components of the economy, suggesting that domestic factors are driving inflationary pressures.

The bank also noted that the labor supply in the country is constrained due to the impact of the war. This constraint on labor availability is further complicating the economic landscape, adding to the challenges faced by policymakers as they navigate both domestic and external economic pressures.

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